Deficit talk cools as parties spar over extension of tax cuts

The deficit-cutting fervor that was a hallmark of both parties over
the summer has waned, as Democrats and Republicans fight over extending
George W. Bush-era tax cuts that would add trillions to an already
mountainous debt.

While both the White House and the GOP would offset at least a portion of the costs, each side wants to make permanent some of the tax cuts — a move that would exacerbate the $13.4 trillion debt problem.

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“They are both proposing to increase the deficit, not reduce the deficit,” said Diane Lim Rogers, the chief economist for the nonpartisan Concord Coalition, a budget watchdog.

While it’s a political axiom that voters never vote on the deficit, this election year seemed to be shaping up differently simply because of the deficit’s size.

The 2010 deficit is expected to approach $1.4 trillion, roughly the same as last year’s shortfall, a record. Deficits over the next decade will average nearly $1 trillion under Obama administration policies, according to the Congressional Budget Office. And they will grow in years beyond that, thanks to the rise in federal entitlement costs, especially for healthcare.

Republicans had spent much of this year hammering Democrats for not doing enough to stop the flow of red ink. GOP leaders, before engaging in the tax-cut debate, had sought to block most of the Democrats’ new stimulus measures — including extensions of unemployment benefits and a package of fiscal aid to the states — on the grounds that they weren’t paid for.

But with just seven weeks before the election, neither side is requiring that an extension of the expiring tax cuts be offset fully. Lawmakers have said their deeper concern is over an economy that is growing slowly and in which nearly one in 10 workers is without a job.

The administration wants to let tax breaks for the wealthy lapse; Republicans generally want all of them extended.

Pressed Monday on whether the administration would seek to pay for the full cost of the tax-cut extensions, White House press secretary Robert Gibbs stressed instead that the president wants to avoid increasing taxes.

“We understand in times of uncertainty, we can’t raise taxes on the middle class,” Gibbs told ABC. “We’re going to follow through with that. We believe that’s a promise the president made in the [2008] campaign. We think on top of that, though, there’s no need to borrow an extra $700 billion to give tax cuts to those who make more than $1 million a year.”

House Minority Leader John Boehner (R-Ohio) has warned about the effects of increasing taxes on anyone in this struggling economy — a position shared by some Democrats.

“Republicans do not believe stopping tax hikes needs to be ‘paid for’ with other tax increases,” said Boehner spokesman Michael Steel. “It’s not Washington’s money, it’s the American people’s money.”

A September USA Today/Gallup poll found that the economy in general is the top issue on voters’ minds, with 62 percent of respondents calling it extremely important. Next came jobs, at 60 percent. Federal spending was tied for third at 51 percent, along with corruption in government.

The White House has stressed that the president’s plan — allowing the upper-income tax cuts to expire while extending the others — would save $700 billion over the next decade. But current law calls for the expiration of all the tax cuts, which would cost roughly $3.7 trillion if they’re extended for another 10 years, according to the independent Tax Policy Center.

“I think the American people are confused about this point, because the administration is emphasizing that their plan on tax cuts will cost less than the Republican plan on the Bush tax cuts,” the Concord Coalition’s Lim Rogers said. “They want people to think the status quo is ... the Bush tax cuts fully extended, but the status quo is, legally, that none of the Bush tax cuts are extended.”

Boehner’s two-pronged plan — make permanent all of the Bush tax cuts, including those for the wealthy, and freeze spending — would cost more. Boehner has said that the spending freeze would save about $340 billion compared to the spending levels that House Democrats are trying to enact this year.

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Budget experts have said that policymakers should debate the tax cuts on different terms. Lim Rogers said that extending the tax cuts may not provide the most “bang for the buck” as economic stimulus. She suggested that temporary tax breaks such as a payroll tax holiday would do more to increase demand in the short term.

Roberton Williams, a senior fellow at the Tax Policy Center, said the other benefit of temporary tax breaks is that they would expire without any action from Congress. That would make it easier, politically, to find the revenue needed in future years to close deficits, he said.

While Congress has repeatedly extended temporary tax policies before, such as the patch for the Alternative Minimum Tax on upper-middle-class taxpayers, that addiction may end due to the growing debt problem, Williams said.

“We’re going to be in dire fiscal straits if we don’t do something in the next few years,” Williams said. “That doesn’t mean Congress will act, but it does mean that there’ll be pressure to do something.”